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What do you mean by Reverse Charge mechanism under GST Goods and service tax

What do you mean by Reverse Charge mechanism under GST Goods and service tax

What do you mean by Reverse Charge mechanism under GST Goods and service tax

  • Under Reverse Charge Mechanism only the buyer is the responsible person to pay the GST tax because the registration was not taken from the department by the seller.Here the buyer should not claim any input tax credit on his purchase because he did not pay it but GST will be collected from him on his sale
  • Under Reverse charge, mechanism buyer should not claim any input tax credit on his purchase because he did not pay it but GST will be collected from him on his sale.

 

Reverse charge’’ means the liability to pay tax by the recipient of the supply of goods or services instead of the supplier of such goods or services in respect of such categories of supplies as notified under sub-section (3) of Section 8.

The concept of Reverse Charge existed earlier under the Service Tax provisions for services like Works Contract, Manpower, Goods Transport Agencies, Legal services etc., However, under the GST, Reverse charge mechanism has been introduced both for Goods and Services.

Section 2(85) “reverse charge’’, means the liability to pay tax by the person receiving goods and/or services instead of the person supplying the goods and/or services in respect of such categories of supplies as the Central or a State Government may, on the recommendation of the Council, by notification, specify.

 

Situations where reverse charge will apply
1. Unregistered dealer selling to a registered dealer

In such a case, the registered dealer has to pay GST on the supply.

2. Services through an e-commerce operator

If an e-commerce operator supplies services then the reverse charge will apply on the e-commerce operator. He will be liable to pay GST.

For example, Xyz provides services of plumbers, electricians, teachers, beauticians etc. XYZ is liable to pay GST and collect it from the customers instead of the registered service providers.

If the e-commerce operator does not have does not have a physical presence in the taxable territory, then a person representing such electronic commerce operator for any purpose will be liable to pay tax. If there is no representative, the operator will appoint a representative who will be held liable to pay GST.

3. Other categories of supplies applicable for reverse charge will be notified by the Centre or State Government.

Registration
All persons who are required to pay tax under reverse charge have to register for GST irrespective of the threshold
Threshold: Northeastern- turnover in a financial year exceeds Rs 20lakhs (Rs Northeastern and hill states)]

Time of supply for goods under reverse charge
In case of reverse charge, the time of supply shall be the earliest of the following dates—
(a) the date of receipt of goods OR
(b) the date of payment OR
(c) the date immediately after THIRTY days from the date of issue of an invoice by the supplier (60 days for services)

If it is not possible to determine the time of supply under (a), (b) or (c), the time of supply shall be the date of entry in the books of account of the recipient.

For clause (b)- the date of payment shall be earlier of-
1. The date on which the recipient entered the payment in his books
OR
2. The date on which the payment is debited from his bank account.;

See also: Invoicing under GST regime

Input tax credit under GST

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